The premise beyond the analysis is that the underlying process is stationary and well behaved but the real world tends to produce long tails that break sophisticated models!
Just ask the team who founded the infamous hedge fund, Long Term Capital Management. The team of Nobel prize winners believed they had a foolproof model to make money but neglected to factor in extremely rare price movements that subsequently occurred and ultimately blew up their hedge fund and nearly took down the world economy too.
So even though it is common to model the progression of asset prices as a stochastic process with drift and a random Brownian term, and changes are assumed to be normally or lognormally distributed, the reality is cryptocurrency price movements are characterized by spikes and plunges.
The broad price range from a minimum of $40 to a maximum of $3,004 is due to the fact the model is calibrated to past data. And it wouldn’t be an outlandish argument to suggest that a price range so wide is not especially helpful anyway in narrowing down an Ethereum price prediction.
Still, few good tools exist to make good cryptocurrency price predictions due to the significant price volatility from one day to the next, so Monte Carlo simulations may prove to be one of the best.
But are there other ways to make Ethereum price predictions?
Ethereum Price Chart: Technical Analysis
Another way to forecast the future price of Ethereum is to use classical technical analysis.
Technical analysis is a tool used to forecast future price movements by analyzing data from trading activity, such as price and volume.
By viewing an Ethereum price chart, a prediction can be made by extending an uptrending mean price line.
When applying this method at the time of writing, the 1-year forecast for Ethereum would place the price at $1,872 U.S. dollars and the 5-year price forecast would result in a price of $4,721.
As with any technical analysis price chart forecast, no guarantees exist that past price movement will be indicative of future price movement.
Ethereum Price Prediction:
Market Capitalization Analysis
Another way to make price forecasts is to compare Ethereum with Apple and Microsoft.
If Ethereum is the “operating system” upon which future blockchain applications are built, it could be compared to Apple and Microsoft, which built the two primary computer operating systems used worldwide.
The combined market capitalizations of Apple and Microsoft are approximately $1.5 trillion at the time of writing whereas Ethereum had a market capitalization just north of $100 billion.
If Ethereum were to realize its potential as the platform upon which all future blockchain technologies were built perhaps its price rise has a significant runway ahead of it yet.
But Apple and Microsoft produce real products and have real customers that pay them year after year so it is difficult to make a like-for-like comparison.
And it would be a bold claim to infer that Ethereum could grow to a market capitalization as large as $1.5 trillion.
The expectation of capturing future value is largely what has catapulted the price of Ethereum and other cryptocurrencies higher.
Whether they will sustain their valuations and continue to grow will depend on how closely expectations match reality.
Ethereum Price Forecast: What Experts Predict
John McAfee became famous as the founder of McAfee anti-virus software but more recently he has jumped on the cryptocurrency bandwagon with gusto.
As one of the leading cryptocurrency miners in the United States, he has predicted a rise in Bitcoin to $1,000,000 per coin by 2020.
If Ethereum were to rise in price by the same amount, it would translate to a 50x increase, which would seem to defy reason because that would equate to a market capitalization of $5.7 trillion!
While that may seem outlandish, McAfee does make the case for blockchain technology and cryptocurrencies in the video below.
This article was republished with permission from Investor Mint.